Canadian FinMin tells Europe to follow U.S. example

Canadian Finance Minister Jim Flaherty stopped by the Reuters studio this morning to chat with Chrystia about the impact of Europe’s debt crisis on Canada. He said the situation in Europe “poses a danger” and that if it gets out of control, the crisis could lead to a repeat of what happened to the financial markets in 2008. He urged the Europeans to follow the course America took in 2008 and substantially increase the amount of capital in the stabilization fund:

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Jim Flaherty: They should imitate what the Americans did quite frankly in 2008 and create a situation where the markets regain confidence in sovereign debt and banking situations. And that means a substantial fund put together or they could do it with bonds and that’s been another suggestion, but a substantial pool that would make it clear that they would be able to defend and protect sovereigns and banking systems in Europe.

Chrystia Freeland: And that pool should be bigger than the one they have now?

Jim Flaherty: Yes

Chrystia Freeland: How much?

Jim Flaherty: Well, I’ll leave that, you know, for them to decide but it needs to be such that the markets would have full confidence, so substantially more than it is right now.

Flaherty also said President Obama’s recent tax-cut compromise was “positive” for the Canadian economy. He did add, though, that the stimulative effect of the tax cuts in the U.S. will be “questionable” given that the wealthy will be the primary beneficiaries and that they are less likely to spend the money.

As for his own country, the finance minister expects the strength of the Canadian dollar to continue, saying that Canada will have to get used to the fact that “we are a strong resource-based economy, [and] commodities prices are relatively strong.” He defended the Conservative government’s rejection of BHP Billiton’s bid for Potash, saying this was a special situation in which the acquisition was not of net benefit to Canada. In Canada, he says, “we rarely say no” to foreign direct investment. Finally, he told Chrystia that he expected the Canadian government would divest its stake in GM “over the course of the next few years.”